Bausch & Lomb disclosed that it may delay filing its third-quarter report and may restate prior results as a result of alleged improper conduct by its Brazilian subsidiary, BL Industria Otica Ltda. and assessments against BLIO by Brazilian tax authorities.
The maker of eye-care products also reported these matters to the Securities and Exchange Commission, which has launched an informal inquiry.
BLIO makes contact lenses and markets many of Bausch & Lomb’s vision care, surgical, and pharmaceutical products in Brazil. In 2004 it accounted for about $20 million in sales, which is less than 1 percent of Bausch & Lomb’s total revenues.
According to a Bausch & Lomb statement, an investigation by the company’s audit committee determined that the general manager, the controller, and other employees of BLIO “engaged in improper management and accounting practices.” These included mischaracterizing roughly $600,000 in expenses to fund an unauthorized local pension arrangement, totaling approximately $1.5 million, for their benefit and the benefit of other local managers; avoiding Brazilian payroll-tax obligations; and misusing company assets for personal benefit.
The audit committee investigation also discovered that Brazilian tax authorities have made assessments against BLIO for unpaid taxes totaling roughly $5 million, as well as interest of about $7 million and about $21 million in penalties. Appropriate reserves relating to these assessments were not reflected by BLIO in its subsidiary financial statements, Bausch noted.
Bausch & Lomb stated it has fired the controller and general manager of BLIO, and will consider further action when the audit committee’s investigation is completed.
The company also stated that any restatement is pending consultation with its auditor, PricewaterhouseCoopers. Bausch & Lomb added that it will complete its required assessment of its internal control over financial reporting, including its control over foreign tax matters, and whether there has been any material weakness in the company’s internal controls.